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Ethiopia Optimistic about Agoa's Window of Opportunity

Published date:
Tuesday, 29 July 2003

Addis Ababa - Pacing his garment factory, 47-year-old Worku Zewde bends down to pick up a piece of cloth that has dropped on the floor.

At least 250 young men and women sit at sewing machines, measuring, cutting and stitching fabric from Taiwan at Garment Express, a joint venture between Worku and a US investor.

The factory produces baseball, basketball, American football and soccer jerseys under the brand Champro Sports Equipment. The product enters the US duty free under the Africa Growth and Opportunity Act (Agoa).

US President George W Bush, who visited Africa this month, has asked congress to extend Agoa beyond its 2008 deadline.

But while most of the 38 sub-Saharan African countries eligible for Agoa have made significant progress by investing aggressively in the scheme, analysts say Ethiopia lags worryingly behind.

Africa's exports to the US under Agoa were valued at $9 billion last year, a 10 percent increase from 2001.

Ethiopia's share of the 2002 exports stood at just $2.3 million. In comparison, Ghana's 2002 Agoa exports were $35 million, Madagascar's $79.7 million and Kenya's $129 million. Lesotho, often held up as the Agoa success story, earned $318 million, mostly from clothing.

While Ethiopia has many garment factories, Worku's is the only one exporting apparel to the US under Agoa. The rest are government-owned factories that mostly specialise in producing clothes for the domestic market.

"We have not benefited from Agoa up to now," said Fantaye Biftu, Ethiopia's minister of state for trade and industry.

"There are weaknesses in our capacity. Our products are not up to export standards. We need to upgrade the skills of our workers and set up textile institutions."

Ethiopia, one of the world's oldest continuous civilisations, is also one of the poorest countries, with an annual income of about $100 per capita.

Its economy, battered by conflict and drought, is very vulnerable. It is heavily dependent on coffee exports, whose prices have suffered due to a glut in the global market.

The government says it hopes to alleviate poverty by improving rural development through agriculture-based industrialisation. But experts say that Ethiopia needs to promote the private sector and provide investment incentives to boost its economy.

A World Bank study on Ethiopia showed that private sector growth is hampered by high taxation, scarcity of human skills, limited access to land and finance, government bureaucracy and weak infrastructure.

Ethiopia's economy is tightly controlled by the government. "All they [the government] have to do is modify their policy on land and export processing zones," said Worku, a US trained medical doctor.

Land in Ethiopia is owned by the state and getting hold of it is a headache because of high lease rates and a complicated lease tenure administration.

The government says it has done a lot to ease the process of acquiring land but it is not going to give it away for free.

"Land was a problem. To acquire land it took a long time but now you can acquire land within 10 to 15 days," Fantaye said.

Businesses in Addis Ababa have to ship their products through Djibouti, adding extra transport, loading, unloading and storage costs.

Djibouti charges about $1 000 per average container.

Worku says businesses would save a lot of money and the country would save foreign currency if it made Addis Ababa a "dry port cargo terminal" so that imports of raw material pass the Djibouti point as transshipment only.

Ethiopian officials say they are considering many of the suggestions made by the private sector and hope to see a sharp increase in Agoa activity in the form of textile and leather exports sooner rather than later.

"Although the volume is very small we can increase it in the next two to three years," Fantaye explained.

His optimism comes from the fact that Ethiopia hopes to step in when other African countries falter once Agoa conditions for export are tightened next year.

From January 2004, sub-Saharan countries will have to source all raw materials from the region to qualify for duty-free treatment under Agoa, whereas now many are still importing cheap fabrics from places like India or Taiwan.

Most African countries whose cotton industries are weak say they need more time to develop their own spinning yarn industry. Ethiopia, where cotton is grown widely, says it is well poised to meet the fabric condition and overtake some of the countries with shakier cotton industries.

"We want to stay in Agoa. The facility has a window for opportunity; it opens and shuts," Worku said as he prepared to visit the construction site of his planned $6.5 million textile factory in another part of the town. - Reuters

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